Rio Tinto’s Sam Walsh is set to decide whether to shut the 1,400-staff Gove alumina refinery in Australia or approve a plan to lower operating costs by switching fuel sources.
The refinery supplying the raw material to make aluminium has been set a 31 January deadline by Rio Tinto, which is looking to bounce back from $14bn in writedowns this month.
The 1,400 staff Gove alumina refinery is expected, analysts say, to serve as a template for dealing with other struggling businesses in the firm’s portfolio, which include coal in Mozambique and other parts of the aluminium business.
According to a report in Reuters, citing researchers Wood Mackenzie, 49% of the Gove refinery’s cash costs relate to energy, equating to $150 per tonne of alumina. The key challenge for Gove is sourcing enough gas to power the operation and CIMB estimates government gas sources would cover little more than half the refinery’s current requirements.
The cost of converting to gas involves the relatively simple and inexpensive process of adjusting boilers to run on gas.
However, the cost to develop a pipeline would be more significant, estimated by CIMB at between A$700-900m.
Responding to a request by Northern Territory Chief Minister Terry Mills for eight more months to shore up sufficient gas supplies, Rio Tinto last week reiterated its intention to “complete the strategic review at the end of the month” and make a decision “shortly afterwards”.
Rio Tinto on 18 January said it would write down between $10bn and $11bn for its aluminium business and replaced its long-running chief executive, Tom Albanese, with Walsh.
In changing top management, the focus on making deals, expanding reserves and output under Albanese is set to shift to controlling costs and running assets at peak efficiency under Walsh, according to Reuters.
